DreamWorks Animation, the company behind successful movie franchises like Madagascar and Shrek, said it had completed a deal to pump its films and TV specials through Netflix, replacing a less lucrative pact with HBO.
The Netflix accord, worth an analyst-estimated US$30 million per picture to DreamWorks over an unspecified period of years, is billed by the companies as the first time a major Hollywood supplier has chosen Web streaming over pay TV. It is also a bet by Dreamworks chief executive Jeffrey -Katzenberg that consumers in the near future will not distinguish between the two.
“We are really starting to see a long-term road map of where the industry is headed,” Katzenberg said in an interview. “This is a game-changing deal.”
Netflix chief content officer Ted Sarandos added: “You’re seeing power moving back into the hands of content creators. When a company like DreamWorks ends a long-running pay TV deal — when a new buyer in the space steps up — that’s a really interesting landscape shift.”
The DreamWorks contract comes as Netflix is trying to navigate a dense thicket of challenges. Competition from the likes of Apple, Amazon and Vudu, a streaming service owned by Wal-Mart, is increasingly fierce; Dish Network, which plucked Blockbuster out of bankruptcy earlier this year, on Friday announced a Blockbuster-branded streaming and DVD-by-mail service.
As a “tidal wave” of Netflix competitors enter, Nomura media analyst Michael Nathanson said: “In the short-term, it will probably be good for the price of content,” because more bidders mean that media companies can charge more for the rights to stream movies like Avatar and shows like Modern Family.
More importantly, “in the long-term, it may accelerate changes in consumer behaviors,” Nathanson said, as more people choose to watch more video online.
Access to movies and TV shows is what matters most to Netflix, and Hollywood, after helping to build up the company with generous deals, is starting to play hardball. In February, Netflix is expected to lose the right to stream films from Walt Disney Studios and Sony Pictures Entertainment, the result of a failed renegotiation with the premium cable channel Starz.
However, Netflix’s biggest challenge at the moment is self-inflicted. This summer, in an attempt to raise cash to license more streaming content, the company increased the price for its combination Internet streaming and DVD service, angering customers.
On Sept. 18, it abruptly said it would split up the two services, frustrating fans of both.
About 1 million of its 25 million customers in the US are believed to have dropped the service in this quarter. The company has lost half of its value — about US$8 billion worth — over the past two months.
Katzenberg said he was confident about the direction Netflix was heading, calling the company’s decision to split streaming and DVD “a very tough and very strategic call that will ultimately prove to be the right one for long-term success.”
“Could it have been handled better? Absolutely. But there are always bumps when you’re looking around a corner,” he added.
Netflix will begin streaming DreamWorks films starting in 2013. The studio plans three releases that year: The Croods, a -prehistoric comedy; Turbo, about a garden snail; and Peabody & Sherman, an adaptation of Rocky and Bullwinkle characters. Titles from the DreamWorks library, including Kung Fu Panda and Antz, will become available over time, the companies said.
For DreamWorks Animation, which has suffered a sharp erosion in its stock price over the past few months, the deal with Netflix comes with one major perk (aside from sheer compensation). HBO requires its studio partners to suspend digital sales of movies during its exclusive window, but Netflix will allow DreamWorks to keep selling digital downloads.
What does the loss of DreamWorks mean for HBO? Anything that increases the marketplace clout of Netflix is damaging, but the premium TV service will likely not miss it much. HBO’s studio partners are increasingly making animated films and HBO recently brought in Summit Entertainment, the studio behind the Twilight films, as a new partner.
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